Seeing the chances of more weak economic data among other signs which outweigh any predictions of cheap stocks, it will not be surprising to find the Wall Street heading to another week of losses for the seventh consecutive week.
On April 29, having closed at the highest level achieved in nearly three years, S&P500 (.SPX) has gone down an estimated 7 percent as a consequence of the soft patch the economy has hit. The tumble has caused a debate to erupt on whether the economy has in fact just hit a soft patch or is heading for a double-dip.
On Friday, the benchmark S&P500 has recorded its decline for the sixth consecutive week as volume has been picked up, which it usually does on down days. Since 2001, yet another week of selling will make it the longest string of weekly losses for the index.
More selling may be ahead, keeping in view the bad junk bond market, red flags in options activity as well as support levels, which have been broken.
Cliff Draughn, currently the president and chief investment officer for Georgia based Excelsia Investment Advisors has said that one needs to be realistic on the matter and some kind of correction needs to be made in the market to bolster its health.
Investors are now seeking refuge in safe-haven assets as stocks have declined because of the decline in both high-yield risk premiums as well as the investment-grade premiums in the bond market.
This is worrisome, as the stocks will most often move with the junk bond market as increasing borrowing expenditures affect corporate revenues.
Despite the big losses, the Volatility index at CBOE (.VIX) seems to have remained relatively the same, depicting that market participants are not ready to hit the panic button just yet.
On the unchanged VIX, president of sentimenTrader.com said in a report that it could be a sign of contentment amongst traders however he added that the current situation may be a better buy signal rather than a sell signal for the VIX, given the absence of a hike in the stock market connection.
Nevertheless, any progress in Washington regarding the budget debates and debt ceiling could cause turnaround in stocks to be strengthened.
